Factors determining pay rates

1) Demand and supply:- Wage rates of workers depends upon demand and supply force in labour market. If the labour is in short supply, the workers will offer the services only if they are paid well. On the other hand, if the supply is more then workers available might get ready work at cheaper rates.

2) Bargaining Power: Where labour unions are strong enough to force the hand of employers, the wages will be determined at a higher level in comparison to other units where unions are weak.

3) Cost of living:- Wages of workers also depends upon the cost of living of the worker so as to ensure him a decent living wage. Cost of living varies under deflationary and inflationary pressures. Where labour unions are strong and employer do not show enough awareness, here wage are adjusted according to cost of living index numbers.

4) Condition of product market:- Degree of competitions prevailing in the market for the product of the industry will also influence the wage level. For eg if there is perfect compition in the market the wage level may be at par with the value of net additions made by the workers to the total output, but may not reach this level in case of imperfect competition in the market.

5) Comparative Wages:– Wages paid by the other firms for the same work also influence the wage levels. Wage rates must also be in consistent with the wages paid by the other firms in the same industry so as to increases the job satisfaction among the workers.

6) Ability to Pay:- Wage rates are influenced by the paying ability of industry or firms to its workers. Those firms which are earning huge profits may afford to pay high wages and can provide more facilities to its workers in comparison to the firms earning comparatively low profits.

(7) Productivity of labour:– Higher productivity will automatically fetch more profit to the firm, where in turn workers will be paid high wages in comparison to other firms with low productivity.

(8) Job Requirements:– If a job require higher skill, greater responsibility and risk, the worker placed on that job will naturally get higher wages in comparison to other jobs which do not require the same degree of skill, responsibility or risk.

(9) Govt. Policy:– Since the bargaining power of the workers is not enough to ensure fair wages in all industries, the Govt. has to interfere in regulating wage rate to guarantee minimum wage rates in order to cover the essentials of a decent living.

(10) Goodwill of the company:- A few employers want to establish themselves as good employer in the society and fix higher wages for their workers. It attract qualified employees.

In addition there are other important factors which affect the individual differences in wage rates. These are:

1). Worker’s Capacity and Age

2). Educational qualification.

3). Work experience.

4). Promotion possibilities.

5). Stability of employment

6). Demand for product.

7). Profits earned by the organisation.

8). Hazards involved in work etc.